Diaper and sanitary pad manufacturer, Kimberly-Clark, is on the brink of announcing the closure of its Ikorodu production facility, merely two years after injecting $100 million into Nigeria. This development comes after the company struggled with production challenges due to Nigeria’s harsh economic conditions.
Underperformance and Economic Challenges
The challenging economic environment in Nigeria, marked by high energy costs, soaring raw material prices, and reduced consumer demand, has significantly impacted operations.
History of Operations in Nigeria
Kimberly-Clark first commenced operations in Nigeria in 2012 but halted them after five years in 2019 due to unfavorable economic conditions. The company restarted its operations in 2021, inaugurating a $100 million facility in Ikorodu, Lagos State, in 2022. Kimberly-Clark produces well-known brands like Huggies diapers and Kotex sanitary pads.
Financial Strain and Operational Adjustments
The company’s operational costs have escalated, particularly energy and raw material expenses. Monthly power generation costs alone amount to approximately N100 million, with total fixed operational expenses exceeding N500 million. These financial pressures have led to operational adjustments, including downsizing and reducing production days to just Mondays through Thursdays.
A source within the company remarked, “Our first two years were fantastic in terms of sales growth and market shares within the diaper industry. Fast forward into late 2022 and 2023 were really bad years for the company due to the economic situation.”
Import-Based Raw Material Costs
High production costs have also been exacerbated by increased raw material prices, which are largely import-based. Kimberly-Clark had initially allocated funds for a five-year operational period, anticipating that revenue from Nigerian operations would eventually sustain the business.
Exit Strategy and Market Impact
Another source indicated that Kimberly-Clark is unlikely to pivot to importing products, as its competitor Procter & Gamble (P&G) has done. This suggests a complete withdrawal from the Nigerian market.
Industry-Wide Challenges
Kimberly-Clark’s challenges are not unique. The high production costs, currency depreciation affecting raw material imports, and weak purchasing power have driven other manufacturers out of Nigeria. Last year, P&G closed its production in Nigeria, following a $300 million investment in a facility in Ibadan. Similarly, PZ Cussons is reevaluating its operations in Africa, particularly Nigeria, due to financial strains and asset disposal challenges.
Competitive Diaper Market
The Nigerian baby diaper industry is valued at approximately $920 million, with an expected compound annual growth rate (CAGR) of 11% between 2024 and 2028. Major players include Pampers (produced by P&G), Molfix, and Kimberly-Clark’s Huggies. The industry remains highly competitive, with around 15 brands vying for market share.
In conclusion, Kimberly-Clark’s impending exit from Nigeria underscores the broader economic challenges facing manufacturers in the country. The company’s departure, following significant investments, highlights the difficulties of operating in an environment plagued by high costs and volatile economic conditions.